Breaking News: India Banks Will Only Offer Real Estate Loans to Earthquake Resistant Buildings

New NDMA guidelines: Loans only for earthquake resistant buildings

By Vipin Agnihotri

Under new guidelines from the National Disaster Management Authority (NDMA), banks may only provide loans for earthquake resistant buildings. The main reason behind this is to enhance collateral security and also caution the borrower against purchasing substandard properties. Talking about NDMA, it was formed under the Disaster Management Act 2005 and is headed by Prime Minister, Dr Manmohan Singh.

If experts are to be believed, the recent guidelines clearly pinpoint the fact that banks will take into account the compliance of seismic safety before giving home loans and loans for construction of multi storeyed complexes.

It has come into the notice of The India Street that NDMA has sent copies of the guidelines to the Ministry of Finance, which in turn will forward it to the Reserve Bank of India (RBI) for issuance. As far as guideline is concerned, all building structures- residential and commercial, including shopping malls, multiplexes and bridges whose completion is after June 30, 2007- will have to mandatorily adhere to earthquake resistant design.

In my opinion, it’s a brilliant move, as the banks will lend only to earthquake resistant homes. In addition, the banks can set out responsibility on the construction industry to comply with the earthquake resistant codes and follow construction routines that achieve earthquake resistant homes.

When The India Street contacted experts in this regard, they were of the view that this will strengthen the collateral security of the bank against which the bank gives loans. “There is no doubt that new policy will ensure that homes attain a top quality standard of earthquake protection,” pointed out Zaheer Abbas, real estate expert based at India adding that banks will also feel secured to offer housing loans, as it gives strength to their collateral security, thereby minimizing their risk profile.

Not so long ago, banks were in a state of confusion when properties mortgaged were destroyed in an earthquake. The recent guidelines from the NDMA for revised building codes reveals that there is a requirement for better protection level against a natural calamity.

The main benefit of adopting higher levels of earthquake protection is that a much lower interest rate can be negotiated with the banks for the particular project.